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tv   First Business  KICU  August 7, 2013 4:00am-4:31am PDT

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market shift: what yesterday's late-day trading is signaling to traders. in today's cover story, why president obama is ready to bid farewall to mortgage lenders fannie mae and freddie mac. plus, why you should consider investing in countries that have yet to catch up to america's prosperity. and, getting ready for groupon: how one trader is hoping for the best and preparing for the worst. first business starts now! you're watching first business: financial news, analysis, and today's investment ideas. good morning! it's wednesday, august 7th. i'm angela miles. in today's first look:
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a summer stock slide. stocks fell yesterday, with the dow down 139 points. it recovered, but still closed 93 points lower. ibm was one of the biggest losers. the nasdaq dropped 27 points, the s&p slipped below 1,700, gold pushed back $19, and oil $1.13. bank of america is one to watch today. the department of justice is suing over the firm's mortgage-backed securities. first solar and ge are striking a deal. first solar will buy ge's technolotgy for making thin film panels. in exchange, ge will receive 1.75 million shares of first solar stock. the stock fell 9% last night after the solar company missed on earnings. disney reports profits were up .9% in the lastest quarter on growth from theme parks and espn. the company took a profit hit on "the lone ranger" at the box office. michael gurka of chicago-based spectrum asset management is with us this morning. good
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morning, michael. i'm wondering what you're thinking about the trading volumes out there. we've hit some lows this week. - yes, actually it was rather impressive yesterday to start seeing the market give back a little after we put in those all-time highs last week. and in particular, there were a couple of things that happened in the market that show that we're getting some - not even referenced as a healthy correction - but certain components of the market that we expect to fall in place that are, and that is the way that the 10-year treasury is trading inversely to the stock market, and in particular, also, the commodities complex. you're starting to see some of this easing off of prices in precious metals, and, of course, in oil, and they're all coordinating themselves, i think, very well with the u.s. dollar. so, to put it first, it's the equities coming off those highs, and i think that that is actually anticipated, but i would not look for that to be prolonged, at least just yet. - did the sell-off have
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anything to do with fears about the fed tapering? - we've had a lot of time to chew on that thought, and in particular i think the reason it doesn't is because volatility will enter the market, and you'll start to see that start rearing its ugly head really quick when you get that tapering component, and we've already had that. so, i think what happened yesterday was some more fed speak from people who are actually well-regarded within the fed on how that's going to happen and when, and we start getting a little bit more of a dovish-toned person talking a little bit more on the hawkish side, and vice versa. i think that's one of the reasons the market reacted the way it did. but again, eventually, you're going to have to wean yourself off that printing. - many thanks, michael, for being on the show. - thank you. in our cover story, in what may an indicator of the housing recovery's strength, president obama says it's time to start the process that may ultimately replace mortgage finance giants fannie mae and freddie mac with
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a bigger private-sector entity to backstop the u.s. mortgage market. president obama flew to phoenix, arizona - a housing market that has seen home prices jump 20% in the last year. with that as the backdrop, the president said it's time to reassess fannie mae and freddie mac. "for too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag." during the housing crisis, fannie and freddie received $188 billion in taxpayer bailout money. now, a bipartisan senate bill introduced in june would create the federal mortgage insurance corporation, to back mortgages and charge lenders for guarantees, similar to the fdic's guarantee of bank deposits preventing bank runs. "it will require banks to be more diligent when approving loans. you might think that may make it harder, but actually, we've seen that already, and the housing recovery is going exceedingly well." "i think the banks have learned their lesson."
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morningstar analyst robert johnson says home prices nationwide are up between 7 and 12 percent over a year ago, but still 25% below where they were when the housing bubble burst. now, getting back to where housing was before is in sight. "it's going to take two to three years before they come back." the president also called upon lenders to keep wide access to the 30-year fixed mortgage, a key for many first-time home buyers. for the record, the bailout of fannie and freddie is being repaid, and a lot of it is due to rising home prices. so far, the mortgage giants have returned $132 billion in dividends to the u.s. treasury. people buying homes are enjoying interest rates on loans that are near record lows. however, fees attached to mortgages are creeping up. according to bankrate.com, mortgage origination fees and closing costs on average rose 6% to $2,400 since last year. the top 5 states with the highest
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closing costs are hawaii, which is nearly $3,000, followed by alaska, south carolina, california and new mexico. holden lewis of bankrate says with mortgage rates so low, fees are the new source of competition between lenders. "mortgage lenders didn't have to compete that much on price. i mean, they were competing on price but, they could kind of ask for whatever they wanted to get. i think that might be toughening, things might be getting a little more competitive." that was holden lewis of bankrate.com. home prices in june grew at the fastest pace in 7 years, according to corelogic. many banks are loosening up on lending. the federal reserve says that demand for home and business loans has increased. for the second quarter in a row, many banks have eased loan restrictions, including auto loans and credit cards. it's a positive signal that may factor into when the fed will decide to end its bond-buying program.
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the number of job openings hits a high. a government report shows nearly 4 million positions are available. it's the most since may of 2008. stats also show there are 3 unemployed americans for every 1 job posting. it's normally 2:1 when the economy is at its best. it's not just the federal government furloughing people - ibm is also using the practice to save money. most of the company's hardware staff will be furlouged for a week at the end of this month. employees will still make 1/3 their normal pay. ibm's hardware division has struggled of late - it's down 12% year-to-year. general motors is reviving operations and rescuing jobs at a tennessee plant. the auto maker will invest more than $160 million on the facility, where it says it will save 1,800 jobs. gm will build two new vehicles there, although it has not specified which models. meanwhile, the company is cutting the price of its battery-powered volt by $5,000. americans are holding onto cars and trucks longer. the average age of vehicles in the u.s. is now 11.4 years, up from 11.2 last year. as overall quality improves, drivers are in less of a rush to replace vehicles. however, it's not stopping them from buying new cars. currently, auto sales are on track for a record year for the
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first time since 2007. under jeff bezos shocked wall street by stepping in to buy the washington post. the newpaper stock rallied $24 yesterday to nearly $600. most of the stock's value comes from the washington post also owning the college prep company kaplan. warren buffett is the largest shareholder in the paper with 1.7 million shares. he's made more than a 9,000% gain with his investment. jeff bezos is paying $250 million to buy the post. his acquisition is viewed as a positive by our morningstar analyst... "he probably has some ideas to accelerate the post's transition to the digital media. i think he's been quoted as saying newpapers in general should be more aggressive at utlilizing mobile devices such as tablets. he probably will push the post toward that end, and that is what we expect him to do."
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the graham family has owned the washingtion post for 80 years. carl icahn is raising his stake in dell. the sec says the billionaire investor now owns close to 9% of the pc company. icahn reportedly bought an additional 4 million shares last week after suing dell over delaying its shareholder meeting. dell and icahn are locked in a battle over the company. a shareholder vote on whether to take the company private is set for september 12th. sony's ceo has formally rejected an offer from hedge fund manager daniel loeb to spin off the company's entertainment division. sony's ceo says the entertainment businesses is "critical to corporate strategy." he adds that ipo subsidiaries tend to have a poor record. sony pictures most
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recently released "the smurfs 2." stocks on a hot streak: solid earnings gave a boost to stocks this week. michael kors is trading higher following this week's earnings report that revealed sales in north america are up 46%. cvs caremark also topped expectations. it says sales of new generic drugs helped profits. and molsen coors stock is buzzing. beer sales were up as the company's profits rose 165%. things are not so hot at american eagle. that stock took a tumble due to expectations of an earnings miss. the stock fell 12%, ending the day above $17. since we sometimes report on ceo's bringing home massive salaries, here's some info from cnn money on top executives earning a $1 a year - although there are often bonuses and perks involved. richard kinder of kinder morgan, along with google co-founders sergey brin and larry page, were all paid no more than $1 last year. on the list of ceos who report getting paid only $1 but are actually compensated much more handsomely: meg whitman at ebay. she took home more than
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$15 million. carl icahn actually made closer to $150,000, and larry ellison of oracle made more than $96 million when you add in bonuses and perks. an investigation into price fixing of a baby formula is coming to a close. mead johnson nutrition company will pay $33 million for its alleged anti- competitive behavior in china. infant formula from the u.s. and other countries is highly valuable in china ever since tainted baby food showed up on the chinese market in 2008. would you buy a monet or renoir from amazon.com? the online retailer is betting you would, listing more than 40,000 works of fine art, some with price tags above $1 million. there are other works from other artists with prices in the $25 to $100 range. coach passengers on jetblue are going to have a tight squeeze soon. the airline is shuffling around its seats to make more
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room for beds that lie flat in its first class cabin. coach passengers will lose an inch of legroom. jetblue is attempting to lure business passengers who often pay the highest fares for last-minute flights. still to come, how to invest in sectors that are facing a summer slump. plus, are traders positioning for a groupon comeback? after the break, a goodie - why the fed head's looming departure is keeping bookies busy. that's after the break. ♪ ♪
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there's been a surge in betting action on the federal reserve. bookies in britain report most gamblers are betting fed tapering will begin in september or december. both months have 3-to-1 odds. fewer bets are being placed on august, which has 12-to-1 odds. when it comes to the next head of the fed, treasury secretary lawrence summers is favored with 4-to-6 odds. he has surpassed janet yellen as most likely to replace ben bernanke. despite the recent record highs in the stock market, there are plenty of sectors that have failed to keep up. michael gayed of pension partners is skyping with us this morning to tell us if some of those may be good places to park money. good
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morning, michael. - hello. - let's start with the bond market - good time or bad to go long on bonds? - i think bonds in general have probably overreacted to this fear about the fed tapering and pulling back on quantitative easing, given that inflation expectations are still relatively muted, and given really a lack of demand pull and cost to push inflation. jobs are not picking up in a very accelerated away. commodity prices are not rising, suggesting that you're not going to see inflation pushed through to the consumer, so it's hard to see how the fed can really step back too aggressively. now, that probably means there is an opportunity a little bit longer and in the curve. but, every single time the fed has tried to step away from stimulus, they've had to come back, and i suspect you're going to see the exact same pattern. - gold has lost its luster. would you get in or get out here? - gold is also one of those things that, like a lot of things this year, has diverged so dramatically from the u.s. stock market, has had, in many ways, its own crash. gold tends
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to do well in what's called a negative real rate environment, meaning when inflation is higher than interest rates. as yields have spiked this year, we are in a positive real rate environment. should we reenter an environment of negative real rates, where inflation is higher than interest rates, then gold probably will surprise to the upside, and i think it's also important to realize gold is very much dependent upon india. india is the largest marginal buyer of gold imports. if india is going to keep on trying to prevent gold from coming into the country, that's going to put somewhat of a ceiling as far as how high any gold rebound might be. - what about emerging markets? which are most likely to show strength going forward? - broadly speaking, emerging markets have been horrible performers on a year-to-date basis, underperforming the s&p by the most since 1998, something i talk about quite a lot in my writings. now, i think you really want to look mainly at "brics" within the emerging market space - brazil, russia, india, and china. one it's a contrarian trade, and two, under this notion that if you believe that the developed markets are correct about the future, that the economy is set to improve given this advance in equity prices, i find it very hard to believe that the brics
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don't participate. so, i think really those four are the areas to focus on, maybe be a little bit more cautious with india given some of the government issues happening there. - michael gayed - pension partners, a pleasure to have you on the show this morning. thank you. - thank you so much. coming up, is excitement about the washington post buyout spilling over to amazon? we'll find out later on. but first, a medical recall that has doctors calling for serious action. that story is just ahead.
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medical device maker stryker is feeling the pinch from an artificial hip recall. the stock continues to show strength, but profits crumbled 34% after the company took a $170 million charge tied to recalls of bad hips. skyping with us this morning, orthopedic surgeon robert zann. and you actually were using these hips on
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patients, but what happened? - stryker made a hip. they make many different hips, and one particular hip is called a modular hip. a modular hip combines a chrome cobalt neckpiece that fits into a titanium shell. unfortunately, the design coming out of stryker's hip ended up being somewhat of a disaster. the disaster is this: they originally predicted that maybe 0.5% of them were going to fail, but those numbers rapidly rose, and now we're looking at a statistic well about 50% of the components are corroding, and the corrosion creates a reaction surrounding the hip, and then chrome cobalt can be released into the bloodstream. and if that gets released in the bloodstream, major problems can happen to various systems: the teeth, neurologic systems, skin changes...
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- the company says that it is prepared to write checks for medical expenses. it also says that it's taking care of this situation and constantly monitoring it, as well as collecting data in the medical community. but do you think this is enough? - as we follow these patients, what we found is, the longer they delay the eventual treatment, the worse they do. so just because the patient comes in and they think that maybe there's something wrong, we have to determine, in effect, if they have what's called a pseudo-tumor, which is a collection of fluid around the hip joint, which automatically means we're looking at a potential disaster, or they simply have slightly elevated chrome cobalt levels, which may not be a problem to them at all. - thank you for your time, doctor. - you're welcome. groupon earnings are due. after the close, a trader play that hopefully won't leave investors clipped on the struggling coupon company. chart talk is next
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alan knuckman of trading advantage joins us now to guide us through the charts on a couple of really newsworthy stocks. let's start with groupon. here we are trading around that $8 range. when will this stock ever get close to its ipo price, which was around $30? - well, you've got to be happy that it's not at $2.60, which was a low. - true. - so $8 is an important level here that we've gotten back
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above. it was a breakdown level back last summer after some disappointing earnings, and now once we've gotten back above this $8 level, it's a support level to lean on. so what i'm looking for is, i want to buy this stock at a discount. i want to sell the $8 put - that would get me into the stock at $7.60 if it's put to me - so it's strictly a technical play and an options probability play. - now, are you doing this because groupon can always come out with a surprise? you could really get squashed in a buy like this if you just bought the stock straight out, correct? - right. right now the stock is trading at $8.74, so my basis price is $1-and-some below where we are. so, instead of putting in a price to buy it when it does go down - if it does - i'm using this option strategy as a way to receive money if it doesn't, and, worst case scenario, i'm getting into it at 13% below where it is now. - quick question about amazon: jeff bezos of amazon fame, of course, is buying the washington post, but it's just jeff, it's not anything to do with amazon. will there be any big shift in this stock? this
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stock is trading around $300. - no, i don't think so, but this is a momentum stock, and a technically-driven stock, so, perfect for a chart segment. amazon at $300 has an all-time high at $313, so we're not far off from that. i still like this bullish momentum, and the strength and power behind it. amazon is trading between $285 and $245. it pulled back, so that projects a $40 move on this breakout above $285, which is a target at $325. so i'm buying the $300 call, selling the $325 call to help pay for it. maximum cost of $10, and the most i can make on is $25. so it's a probability play for january, so i have five months for good things to happen and this stock to continue to go up, up and away. - thank you, alan. - thank you. as we wrap up the show for today, coming up tomorrow on first business, disney's high hopes its new movie "planes" will soar at the box office after taking a bad shot on "the lone ranger." thanks for watching! we wish you a wonderful wednesday.
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